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Should Policy in a Monetary Union be based on Union Aggregates?

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  • Jensen, Christian

Abstract

In a standard New-Keynesian sticky-price model of monetary policymaking, we show that formulating the policy objective of a monetary union in terms of a weighted average of objectives for inflation and output in each of the member countries, instead of union-wide aggregate inflation and output, can have an important impact on the effective weight each member country carries in policymaking. This has implications for how fluctuation costs are distributed among member countries, and whether or not monetary policy contributes to harmonize inflation and output across the union.

Suggested Citation

  • Jensen, Christian, 2012. "Should Policy in a Monetary Union be based on Union Aggregates?," MPRA Paper 45641, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:45641
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Monetary policy; Monetary union; Policy objectives; Harmonization;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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